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US Brings Back Sanctions on Iran: Winners & Losers

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The first round of U.S. sanctions on Iran will go into effect on Aug 7, affecting the country’s access to dollars, gold and precious metals. Another set of sanctions, especially, on the import of Iranian oil is set to hit in November, thus, reinstating restrictions that were lifted under the Obama administration-led nuclear deal.

So, what is the Iran nuclear deal? It is a historic agreement reached by Iran and several other world powers including Britain, China, France, Germany, Russia and the United States to reduce the Islamic Republic’s ability to produce two major components of nuclear weapons — plutonium and uranium. In return, Iran will be spared of crippling financial sanctions. The deal also permitted Iran to export more crude, provided the nation restricted its nuclear activities.

Here is a rundown of the sanctions’ big winners and losers —

US Sanctions on Iran Back in Place

The White House built pressure on Iran by reinstating a slew of tough economic sanctions against the Islamic state. President Trump confirmed that he would take punitive measures on Tehran that had been waived as part of the 2015 Iran nuclear deal from which the United States withdrew in May.

The sanctions restrict Iran’s purchase of U.S. currency. They also bar trading in cars and metals and minerals that include gold, steel, coal and aluminum. Iran cannot buy U.S. and European aircraft either. If this wasn’t enough, even more stringent measures are planned for implentation by Nov 4, including a prohibition on the import of Iranian oil and preventing financial institutes from carrying on transactions with Iran’s central bank.

The move marks the latest milestone in President Trump’s initiative to unwind the Obama-era nuclear agreement. Trump had said that it was a “horrible one-sided deal that should have never, ever been made.” He added that the “Iran deal is defective at its core” and it’s an “embarrassment” that the United States did little to restrain Iran’s nuclear ambition.

Iranians have been anxiously bracing for these new round of sanctions. Mohammad Javad Zarif, the Iranian foreign minister, slammed the decision and said that “bullying, economic power and political pressure from Washington may have led to some disruptions in Iran but today the US is isolated in the world.” Nevertheless, Iran’s currency rial has tanked more than 50% against the U.S. dollar, resulting in soaring prices and joblessness.

Oil Spikes, Energy Shares Gain

With the United States poised to reimpose sanctions on Iran’s petroleum sales, oil prices scaled north. After all, barring imports of Iranian energy has disrupted global oil production at a time when the crude market is tight. 

The international benchmark, Brent crude oil, rose as high as 0.7% to $73.75 on Aug 6, while the benchmark price for U.S. crude oil climbed to 0.8% to $69.01.  Shares of energy companies, undoubtedly, are poised to rally as crude prices hover near $70 a barrel. Energy shares are looking up after they fell out of favor when oil price slipped from $100 a barrel to under $30 in 2014. In fact, U.S. sanctions on Iran could propel oil prices above $90 a barrel in the fourth quarter, per Amrita Sen, chief oil analyst at Energy Aspects.

From exploration and production firm Anadarko Petroleum Corporation (APC - Free Report) and Hess Corporation (HES - Free Report) to petroleum refiner Valero Energy Corporation (VLO - Free Report) , all have seen a rally in shares of more than 20% year to date, easily outperforming the broader S&P 500’s gain of 5.1%. Meanwhile, smaller energy equipment and services companies, whose shares tend to rise with an uptick in oil prices, have gained even more.

At the same time, companies like Encana Corporation, Occidental Petroleum Corporation (OXY - Free Report) and Pioneer Natural Resources Company’s (PXD - Free Report) earnings are poised to improve further as oil prices scale north. This is because these companies have already posted better results in the most recent quarter when oil prices were between $50 and $60 a barrel.

Given this bullishness, some of the top-ranked energy shares one could consider are Northern Oil and Gas, Inc. (NOG - Free Report) , W&T Offshore, Inc. (WTI - Free Report) and Peabody Energy Corporation (BTU - Free Report) . These stocks flaunt a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.

Travel Stocks Take a Hit, Aircraft Makers Lose Contracts

The surge in oil prices invariably will incite investors to dump travel and leisure stocks, put off by the prospect of increasing fuel costs for airlines.

Trump’s announcement to withdraw from what he considers a “defective” Iranian nuclear deal, in the meantime, is expected to heighten tensions in the Middle East region. This doesn’t bode well for The Boeing Company (BA - Free Report) and its European counterpart Airbus. The airline manufacturers stand to lose contracts worth roughly $39 billion to replenish Iran’s aging fleet of commercial planes due to the Trump administration’s reimposition of sanctions.

Iran, by the way, has one of the world’s most dilapidated fleet of passenger jets as per Western standards. When the sanctions were lifted as early as 2015, both Boeing and Airbus rushed to Iran and had signed orders valued at nearly $40 billion.

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